Sustainable, Responsible and Impact Investing
With investment comes power. Every financial decision you make reflects your value system and directly impacts the world in a larger way.
Investing with your values has been called many names. You may recognize:
- Socially Responsible Investing (SRI)
- Environmental, Social, and Governance (ESG)
- Ethical investing
- Values based investing
- Green investing
- Impact and community investing
At Bluprint Financial, we believe that "sustainable, responsible and impact" (SRI) investing is the most compelling and holistic name. Let’s take a closer look at each of these criteria.
- Sustainable – The ability to continue over time. To pursue sustainability is to create and maintain conditions under which humans and nature can exist in harmony to support present and future generations.
- Responsible – To be accountable for those decisions and outcomes within our power.
- Impact – To support efforts focused on beneficial social change across local and global communities.
Overall, we believe that you define what sustainable, responsible and impact investing means to YOU.
What is SRI for You?
We hear many different answers, but they often focus on concepts such as purpose, legacy, justice, environmental care, and spirituality. At Bluprint Financial, embracing the golden rule drives our explanation of why SRI is important. We ask question like:
- How would you like to be treated?
- How would you like your backyard cared for?
- What hopes do you have for the younger generations of your family?
Encompassing a myriad of values and beliefs, the interconnectedness of life becomes clear. We understand that the health of humanity is interconnected to the health of the earth. We also know that time is our most valuable asset. Today, you can choose to make a difference.
“Yesterday is gone. Tomorrow has not yet come. We have only today. Let us begin.”
― Mother Teresa
Strategies of Sustainable, Responsible and Impact Investors
SRI investors rely upon three primary pillars to guide their actions:
1. Screening and Environmental, Social, and Governance (ESG) Integration
Responsible investors have traditionally focused on screening their portfolio in a manner that excluded areas they didn’t want to support. Responsible investing has evolved, and now investors also support positive corporate behavior. ESG integration has achieved widespread adoption as a quantitative approach providing efficient investment analysis and portfolio constructions across many assets.
Some of the most commonly screened areas include:
- Environmental Track Record and Sustainability
- Corporate Governance, Business Ethics and Transparency
- Product Safety
- Fair and Safe Workplace
- International Human Rights
- Spiritual and Religious Beliefs
Once we understand your investment and ethical priorities, we help you screen investments included in your portfolio.
2. Shareholder Advocacy
Investors of publicly traded companies have ownership rights that can be leveraged for positive change in corporate behavior. Many SRI investors implement strategies alone and, more often, in concert with other like-minded stakeholders. Shareholder advocacy can range from simple dialogue to filing shareholder resolutions to organizing voting proxy campaigns that raise awareness and encourage corporate policy reform.
Popular advocacy issues for investors include:
- Environmental and Climate Change
- Corporate Governance
- Human Rights
- Lobbying/Political Contributions
- Equal Employment
We believe in advocating for you and for the betterment of society. Therefore, we participate in advocacy efforts that are aligned with our client’s goals and all stakeholder interests.
3. Community and Impact Investing
Community investments implement strategies to support marginalized and underserved communities. These investments are designed to generate measurable social returns and are forward-thinking solutions that make a difference, both socially and environmentally. The financial returns for these investments are competitive but offer below market returns.
Examples of these investment themes include:
- Women’s Empowerment
- Affordable Housing
- Small Business Development
- Health Care and Education
- Neighborhood Revitalization
- Renewable Energy
- Organic and Healthy Solutions
- Clean Water Solutions
- Waste Minimization
Impact and community investing provide win-win opportunities for investors and community members by focusing on improvements aligned with individual financial goals that bring positive change to community life.
The Performance Myth of SRI
We believe common sense lends credence that investments supporting equitable governance, fair treatment of employees, stakeholder input, and shareholder responsibility pose less liability risk and generate financial returns. Fortunately, there is substantial evidence that this thought is not unfounded.
Benefits of ESG
In the report, “ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020,” authors from NYU Stern Center for Sustainable Business and Rockefeller Asset Management examined the relationship between ESG and financial performance.
The researchers divided articles into those focused on corporate financial performance and those focused on investment performance. They found a positive relationship between ESG and financial performance in 58% of the corporate studies focused on operational metrics or stock price. In addition, they found 13% of the studies showing a neutral impact, 21% with mixed results, and only 8% showing a negative relationship. For investment studies typically focused on risk-adjusted attributes, 59% showed similar or better performance than conventional investment approaches, while only 14% found negative results.1
The authors explained, “Our analysis demonstrates the benefits of incorporating ESG information into an investment process for long-term investors managing through varying economic cycles toward a low-carbon future.” 1
One of the best ways to compare performance is by comparing indexes of portfolio companies that have strong Environmental, Social and Governance ratings to a portfolio without ESG companies. The MSCI KLD 400 Social Index includes 400 US Securities with outstanding ESG ratings but excludes companies whose products may have negative environmental or social impacts. Originally named the Domini 400 Social Index, it was launched in 1990 and is one of the first socially responsible investing indexes. According to the MSCI KLD Social Index report from October 31, 2022, the 10-year rate of Annualized Gross Returns was 12.31% vs. 11.91% return for the MSCI USA IMI.2 The differences are negligible, and that’s the point.2
Other recent studies confirm neutral and positive performance of socially screened investments compared to corporations with lower ESG ratings. According to the white paper, “Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds” by the Morgan Stanley Institute for Sustainable Investing, no trade-off was found in the financial performance of sustainable funds compared with their traditional peers. This analysis found that the total returns of 10,723 funds between 2004 and 2018 had only sporadic and inconsistent differences in performance. Therefore, the returns of sustainable funds were in line with those of traditional funds.3
In another article titled “ESG and financial performance: aggregated evidence from more than 2000 empirical studies” from the Journal of Sustainable Finance & Investment, the authors reviewed over 2,000 empirical studies and several review studies (published between 1982-2015) on the relationship between Environmental, Social, and Governance (ESG) criteria and corporate financial performance (CFP). They discovered that approximately 90% of studies found a nonnegative ESG-CFP relation, and the majority of studies found positive findings. The report highlights that the positive ESG impact on corporate financial performance appears stable over time.4
While investing involves risk, different types of investments have varying degrees of risk. Like all investments, sustainable, responsible and impact investing does not guarantee any amount of success. All investors should be prepared to bear investment loss, including loss of original principal. However, if sustainable, responsible and impact investing is your priority, you can create a portfolio that does not need to sacrifice returns or risk level for your investing preferences.
1 Whelan T, Atz U, Van Holt T, Clark C, C. 2021. “ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020”. Note: The median start and end date for an individual study’s data sample was 2007 to 2015.
2 MSCE KLD 400 Social Index Factsheet October 31, 2022 Note: You cannot invest directly in these indices. This should not be taken as a recommendation to invest in any vehicle that tracks this index. Past performance is not indicative of future results.
3 Morgan Stanley & Co. incorporated. 2019. “Sustainable Reality: Analyzing Risk and Returns of Sustainable Funds.” Note: See 2020 Update
4 Friede G, Busch T, Bassen A. 2015. “ESG and financial performance: aggregated evidence from more than 2000 empirical studies.”